[Federal Register Volume 70, Number 56 (Thursday, March 24, 2005)]
[Rules and Regulations]
[Pages 14999-15004]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-5810]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF EDUCATION

34 CFR Part 225

RIN 1855-AA02


Credit Enhancement for Charter School Facilities Program

AGENCY: Office of Innovation and Improvement, Department of Education.

ACTION: Final regulations.

-----------------------------------------------------------------------

SUMMARY: The Secretary issues these final regulations to administer the 
Credit Enhancement for Charter School Facilities program, and its 
predecessor, the Charter School Facilities Financing Demonstration 
Grant program. Under this program, the Department provides competitive 
grants to entities that are non-profit or public or are consortia of 
these entities to demonstrate innovative credit enhancement strategies 
to assist charter schools in acquiring, constructing, and renovating 
facilities through loans, bonds, other debt instruments, or leases.

DATES: These regulations are effective April 25, 2005.

FOR FURTHER INFORMATION CONTACT: Ann Margaret Galiatsos or Jim Houser, 
U.S. Department of Education, 400 Maryland Avenue, SW., room 4W245, FB-
6, Washington, DC 20202-6140. Telephone: (202) 205-9765 or via 
Internet, at: [email protected].
    If you use a telecommunications device for the deaf (TDD), you may 
call the Federal Relay Service (FRS) at 1-800-877-8339.
    Individuals with disabilities may obtain this document in an 
alternative format (e.g., Braille, large print, audiotape, or computer 
diskette) on request to the contact persons listed under FOR FURTHER 
INFORMATION CONTACT.

SUPPLEMENTARY INFORMATION:

Background

    These final regulations apply to both (a) the Credit Enhancement 
for Charter School Facilities program, which is authorized under title 
V, part B, subpart 2 of the Elementary and Secondary Education Act of 
1965 (the Act), as amended by the No Child Left Behind Act of 2001 
(Pub. L. 107-110, enacted January 8, 2002) and (b) its predecessor, the 
Charter School Facilities Financing Demonstration Grant program, as 
authorized by title X, part C, subpart 2 of the Act through the 
Department of Education Appropriations Act, 2001 as enacted by the 
Consolidated Appropriations Act, 2001. The purpose of this program is 
to assist charter schools in meeting their facilities needs. Under this 
program, funds are provided on a competitive basis to public and 
nonprofit entities, and consortia of these entities, to leverage other 
funds and help charter schools acquire school facilities through such 
means as purchase, lease, and donation. Grantees may also use grants to 
leverage other funds to help charter schools construct and renovate 
school facilities.
    To help leverage funds for charter school facilities, grant 
recipients may, among other things: Guarantee and insure debt, 
including bonds, to finance charter school facilities; guarantee and 
insure leases for personal and real property; facilitate a charter 
school's facilities financing by identifying potential lending sources, 
encouraging private lending, and carrying out other, similar 
activities; and establish temporary charter school facilities that new 
charter schools may use until they can acquire a facility on their own.
    Sections in these regulations that govern the management of grants 
apply to grants under both the Credit Enhancement for Charter School 
Facilities program and its predecessor, the Charter School Facilities 
Financing Demonstration Grant program. These two programs are virtually 
identical, and grants made under them will operate for several years. 
Sections related to grantee selection apply only to grant competitions 
conducted after fiscal year (FY) 2004.

Discussion of Regulations

    The primary purpose of these regulations is to establish selection 
criteria for this complex program's discretionary grant competitions 
after FY 2004. Since we seek to award grants to high-quality applicants 
with high-quality plans for use of their grant funds, these criteria 
essentially include assessments on the quality of the applicant and the 
quality of the applicant's plan. The criteria also assess how 
applicants propose to leverage private or public-sector funding and 
increase the number and variety of charter schools assisted in meeting 
their facilities needs. The selection criteria are similar to those we 
have used in the two previous competitions for this program. As noted 
in the Background Section, this regulation also includes several 
provisions that govern the ongoing management of the grants already 
awarded in preceding fiscal years.

Analysis of Comments and Changes

    On October 22, 2004, the Secretary published a notice of proposed 
rulemaking (NPRM) for this program in the Federal Register (69 FR 
62008). In response to the Secretary's invitation in the NPRM, four 
parties submitted comments on the proposed regulations. An analysis of 
the comments and of the changes in the regulations since publication of 
the NPRM follows. We discuss substantive issues under the subparts of 
the regulations to which

[[Page 15000]]

they pertain. Generally, we do not address technical and other minor 
changes.

Subpart A--General

    Comment: A commenter thought that Sec.  225.1 would be clearer if 
it explicitly mentioned that the purposes of the program included 
helping charter schools construct or renovate school buildings.
    Discussion: The Department agrees that helping charter schools 
construct or renovate school buildings is an objective of the program.
    Change: The regulations now reference construction and renovation 
under Sec.  225.1(b)(1).

    Comment: One commenter sought a change to how the Department is 
implementing 34 CFR 74.24 as it relates to guarantee fees assessed by 
program participants. The commenter sought to have the flexibility to 
use these fees for purposes other than just the four purposes of the 
reserve account described under section 5225 of the program statute, 
which are to--
     Guarantee and insure debt;
     Guarantee and insure leases;
     Facilitate lending; and
     Facilitate bonding.
    Discussion: Guarantee fees based on the Federal grant funds are 
program income. Program income is income that is directly earned from 
the grant. If the Federal grant funds are being directly pledged as a 
guarantee to earn fees, these fees are directly earned by the grant.
    Under most Federal grant programs, the size of the grant is 
typically reduced by the amount of any program income earned. Under 
this program, however, the statute specifies that grantees may use 
their grants to earn funds as long as the earned funds are placed in 
the reserve account and used for the designated four reserve account 
purposes.
    Since the program's statutory authority does not authorize the 
Secretary to allow grantees to use reserve account earnings for 
purposes other than the four reserve account purposes, it is not 
permissible to implement the proposed change.
    Change: None.

Subpart B--How Does the Secretary Award a Grant?

    Comment: One commenter indicated that it supported the proposed 
selection criteria under Sec. Sec.  225.11 and 225.12.
    Discussion: The Department has made minor changes to clarify the 
selection criteria as noted below based on other comments. These 
changes are not substantive in nature.
    Change: Some technical changes are made as noted below.

    Comment: One commenter recommended that the selection criteria 
emphasize a preference for proposals that would make credit both more 
available and affordable to charter schools in their respective States 
through partnerships with State or local government entities. The 
commenter sought to enhance the long-term impact of this program by 
providing an incentive to State governments to provide financing to 
charter schools to obtain facilities.
    Discussion: The Department believes that grant projects from public 
entities, such as State and local governments, that make facility 
financing more readily available and less expensive for charter schools 
is desirable. The program statute requires the Department to fund at 
least one grant application from a public entity, one from a non-
profit, and another from a consortium, provided that each is of 
sufficient merit. The Department does not want to provide a preference 
for one of these three types of applicants over the other two because 
it seeks to fund those applications that will be of the greatest 
benefit to charter schools. The Department was unable to fund any 
applications from public entities under the first grant competition for 
this program, but it provided considerable technical assistance to 
public entities during the second grant competition and funded two 
grant applications from public entities in that competition.
    In addition, the proposed selection criteria address making credit 
more available and affordable. Selection criterion Sec.  225.11(b)(4) 
takes into account serving charter schools with the greatest need, 
thereby emphasizing the importance of increasing the availability of 
credit to charter schools that would otherwise lack it. Selection 
criterion Sec.  225.11(a)(1) emphasizes providing better rates and 
terms on loans, which encourages grant applicants to provide affordable 
financing.
    The program statute and the selection criteria already provide 
considerable incentive for a public entity to submit the type of grant 
application it seeks to promote. The Department will continue to 
provide technical assistance to public entities to encourage them to 
submit proposals that make facility financing more accessible and 
affordable to charter schools.
    Change: None.

    Comment: One commenter thought that the selection criteria 
encourage taxable financing rather than providing tax-exempt bonds, 
which may be more beneficial to borrowers. The commenter thought that 
the current selection criteria appear to favor applicants that have 
pre-existing relationships with financial institutions. The commenter 
indicated that tax-exempt bond financing by definition does not involve 
pre-identified investors because tax-exempt bond financing raises 
capital by selling bonds to investors enticed by the sellers' 
potential.
    Discussion: The Department agrees that the program should promote 
tax-exempt bond financing for charter schools when practicable. The 
selection criterion Sec.  225.11(a)(1) would help promote applications 
that provide tax-exempt bond financing, since charter schools would 
benefit from lower interest rates in the tax-exempt market.
    The Department does not believe that the selection criteria harm 
applicants that cannot identify investors at the time they apply for 
their grant. For instance, one of the Department's current grantees 
successfully submitted a grant application indicating that it planned 
to credit-enhance tax-exempt bonds for charter schools. The grantee did 
so by demonstrating its ability to recruit financial institutions, 
including institutions with substantial experience in tax-exempt 
financing, that will work with charter schools. Consequently, the 
Department believes that an applicant proposing to provide tax-exempt 
bonds that demonstrate the ability to market bonds successfully to 
investors could also be successful.
    Change: None.

    Comment: A commenter was concerned that the reference to ``better 
rates'' under Sec.  225.11(a)(1) might either--
     Inadvertently favor direct lending institutions that use 
their grants to credit-enhance their own charter school facility loans; 
or
     Cause charter school organizations with stronger credit 
histories that can qualify for ``better rates and terms'' to ``bump'' 
less credit worthy, including most new charter schools.
    Discussion: This criterion is not designed to favor grant 
applicants using one type of model over applicants using other types. 
For instance, an applicant that does not make loans itself but instead 
works with a different lender on a loan-by-loan basis could help 
charter schools shop for the best rates and terms on facility financing 
among several investors.
    The criterion is designed to reward applicants that can provide 
charter schools--whose students are the ultimate beneficiaries under 
the program--with good rates and terms on

[[Page 15001]]

facility financing. The term ``better rates and terms'' applies to both 
those charter schools that already have access to credit and those that 
do not. An applicant would not be providing better rates and terms to a 
low-risk charter school if it provided it with an interest rate and 
under the same terms that the school could obtain without assistance 
through the program. Furthermore, selection criterion Sec.  
225.11(b)(4) already addresses the risk level of charter schools to be 
served so that applicants will not try to achieve low interest rates 
and good loan terms by serving charter schools that already have access 
to attractive financing for facilities.
    Change: None.

    Comment: One commenter, a group consisting largely of institutions 
that directly lend funds to charter schools, objected to including the 
language regarding ``better rates and terms'' under Sec.  225.11(a)(1), 
because it thought that--
     The primary purpose of the program should be to provide 
access to capital; and
     The criterion contradicts the goal to leverage funds under 
Sec.  225.11(a)(6).
    In addition, the commenter thought that ``better'' needed to be 
defined since some charter schools have no access to capital at all.
    Discussion: The Department believes that the program should serve 
dual purposes--
     To provide access to capital; and
     To provide better rates and terms on charter school 
facility financing.
    The Department believes that if an applicant proposed to (1) serve 
charter schools that already have access to capital; and (2) provide 
these schools with the same rates and terms charter schools can 
receive, absent assistance from a grantee, the applicant should justify 
why such an approach is in the best interest of charter schools. If an 
applicant proposed to provide financing to a charter school that would 
otherwise have no access to financing at all, the applicant would be 
providing better rates and terms to the charter school than it could 
otherwise obtain absent the program. However, the Department does not 
see the need to codify a definition of ``better'' and prefers to allow 
applicants to address how their proposals are beneficial to charter 
schools so that its external grant readers can determine if they are 
better than what charter schools can obtain absent assistance from the 
program.
    The Department agrees that particularly low interest rates may 
require relatively high levels of credit enhancement that would result 
in low leveraging ratios. Applicants must determine how to best balance 
this trade-off in the interest of charter schools. Since the Department 
believes that providing charter schools access to capital addresses 
Sec.  225.11(a)(1), it does not view this provision as encouraging 
applicants to lower their leveraging ratios.
    Change: None.

    Comment: One commenter thought that inserting the words ``more than 
they would'' in Sec.  225.11(a)(6) would help clarify the meaning of 
the criterion.
    Discussion: The Department concurs.
    Change: Similar language is added.

    Comment: One commenter thought that the program should support 
passage of strong charter school laws in the States. The commenter 
thought that the Department could accomplish this by focusing those 
grants on entities that will help enhance credit for charter schools 
that operate in States with strong charter school laws.
    Discussion: The Department agrees that the program should help 
encourage States to pass strong charter school laws. The proposed 
regulations included a provision (Sec.  225.11(a)(7)) that would for 
the first time take into account the strength of these laws. The 
Department believes that the proposed regulation addressed the 
commenter's concern.
    Change: None.

    Comment: One commenter thought that the program should not include 
Sec.  225.11(a)(7), which encourages applicants to serve States with 
strong charter school laws. The commenter thought that this would work 
against the Department's goal of serving charter schools in communities 
with the greatest need for school choice.
    Discussion: The Department agrees that the program should help 
serve communities with the greatest need for school choice. The 
Department provides up to 15 points to grant applicants on this basis 
under Sec.  225.12. Furthermore the Department encourages applicants to 
serve charter schools with the greatest need under the provision in 
Sec.  225.11(b)(4). The Department, however, also wants to encourage 
States to pass strong charter school laws.
    Change: None.

    Comment: One commenter recommended that the selection criteria 
place a greater emphasis on and preference for proposals that offer new 
approaches that have not yet been demonstrated.
    Discussion: The Department believes innovative projects that have 
not yet been demonstrated can be beneficial, as can projects that 
employ approaches that have already demonstrated that they successfully 
meet the needs of charter schools. Since the Department seeks to fund 
applications that will be of the greatest benefit to charter schools, 
it prefers not to favor one type of project over another.

    Change: None.

    Comment: One commenter recommended that the selection criteria more 
explicitly emphasize a preference for proposals that would help create 
permanent credit enhancement programs for charter schools that will 
extend beyond the life of the grant program and be replicable through 
State policies.
    Discussion: The Department agrees that a grant proposal that 
exceeded the life of the grant program and that States could replicate 
could be of great benefit to charter schools. The Department also 
believes that a proposal that would create a permanent credit 
enhancement program would likely score high under the proposed 
selection criteria. These grants do not end until all of the grant 
funds are spent or the debt guaranteed by grant is no longer 
outstanding. The life span of the funded grants varies from about five 
years to over twenty years.
    The program statute requires the Department to fund at least one 
grant application from a public entity, provided that it is of 
sufficient merit. Furthermore, selection criterion Sec.  225.11(c)(7) 
emphasizes the extent to which States have or will meet charter 
schools' facility funding needs. In addition, selection criterion Sec.  
225.11(a)(4) addresses the extent to which proposed grant projects are 
replicable. The Department itself plans to evaluate its grantees and 
disseminate successful models that are replicable.
    Change: None.
    Comment: One commenter thought that the program has not always 
taken advantage of economies of scale and that the Department should 
give larger grants to fewer recipients in order to reduce interest 
rates for charter schools.
    Discussion: The Department also wants to take advantage of 
economies of scale, when possible. The Education Department General 
Administrative Regulations (EDGAR) address how grants are funded under 
34 CFR 75.217 and the Department does not believe that it would be 
appropriate to revise these criteria for this particular program.
    Change: None.

    Comment: One commenter wanted the selection criteria to reward 
applicants that have demonstrated--
     The ability to assist charter schools over a wide 
geographic area; and
     The willingness to credit-enhance charter school facility 
financing

[[Page 15002]]

transactions with the most risk, i.e., guarantees for ``start-up'' and 
new charter schools, including leasehold improvement loans.
    Discussion: One of the goals the Department set when establishing 
these selection criteria was to not restrict applicants from proposing 
innovative applications. One type of innovative application might be to 
establish a secondary market for charter school loans. A secondary 
market would likely be limited to several States so that investors 
could reasonably become familiar with the risk associated with serving 
charter schools in those particular States. If a selection criterion 
was added that encouraged applicants to serve a wide geographic area, 
it might discourage applicants from working with a given set of States 
to help develop a secondary loan market for charter schools.
    The Department does not want to provide a preference for one type 
of application over other types because it seeks to fund those 
applications that will be of the greatest benefit to charter schools. 
In addition, defining what a wide geographic area means could prove 
difficult, since it potentially involves the distance between charter 
schools that would receive services from an applicant.
    An applicant that had the ability to serve a geographically diverse 
area could propose to target States that are relatively underserved. 
This could enable the applicant to better target charter schools with 
the ``greatest demonstrated need'' under Sec.  225.11(b)(4).
    The selection criteria already take the risk level of charter 
schools into account under Sec.  225.11(b)(4) by encouraging applicants 
to assist ``charter schools with a likelihood of success and the 
greatest demonstrated need for assistance under the program.'' This 
criterion is designed to encourage applicants to serve charter schools 
with the need for assistance, including new charter schools and schools 
seeking leasehold improvement loans. The criterion also includes the 
likelihood of success of a charter school since the Department would 
not want to encourage applicants to take unwarranted risk.
    Change: None.

Subpart C--What Conditions Must Be Met by a Grantee?

    Comment: One commenter thought that the Department should evaluate 
the Credit Enhancement for Charter School Facilities grants program, if 
possible by using national activity funds under the Charter Schools 
Program.
    Discussion: The Department concurs and plans to evaluate the 
program using these funds. However, the Department does not generally 
promulgate regulations about what programs it evaluates and how it 
funds its evaluations.
    Change: None.

    Comment: A commenter thought that the term ``reserve account'' 
should be defined. The commenter noted that the list of definitions 
under Sec.  225.4 does not reference a definition of the term in either 
EDGAR or in the statute.
    Discussion: Neither EDGAR nor the program statute define this term. 
Section 5225 of the program statute, however, clearly indicates how the 
reserve account operates. The Department does not attempt to repeat the 
entire statute in these regulations and believes the statute provides 
sufficient clarification as to what is meant by a reserve account.
    Change: None.

    Comment: A commenter thought that Sec.  225.21(b) could be 
interpreted as preventing grantees from paying contractors directly in 
the event of a default.
    Discussion: The language does not prevent grantees from directly 
paying contractors in the event of a default. The section is not 
intended to provide an extensive list of impermissible uses of the 
funds or exceptions to the impermissible uses.
    Change: The regulation now clearly indicates that contractors may 
be paid directly in the case of a default.

Executive Order 12866

    We have reviewed these final regulations in accordance with 
Executive Order 12866. Under the terms of the order we have assessed 
the potential costs and benefits of this regulatory action.
    The potential costs associated with the final regulations are those 
resulting from statutory requirements and those we have determined to 
be necessary for administering this program effectively and 
efficiently.
    In assessing the potential costs and benefits--both quantitative 
and qualitative--of these final regulations, we have determined that 
the benefits justify the costs.
    We have also determined that this regulatory action does not unduly 
interfere with State, local, and tribal governments in the exercise of 
their governmental functions.

Summary of Potential Costs and Benefits

    We summarized the potential costs and benefits of these final 
regulations in the preamble to the NPRM (69 FR 62009). We include 
additional discussion of potential costs and benefits in the section of 
this preamble titled Analysis of Comments and Changes.

Paperwork Reduction Act of 1995

    The Paperwork Reduction Act of 1995 does not require you to respond 
to a collection of information unless it displays a valid OMB control 
number. The collection of information in these final regulations has 
been approved by OMB under control number 1855-0007. This control 
number also is listed in the final regulations at the end of the 
affected sections in the final regulations.

Intergovernmental Review

    This program is subject to Executive Order 12372 and the 
regulations in 34 CFR part 79. One of the objectives of the Executive 
order is to foster an intergovernmental partnership and a strengthened 
federalism. The Executive order relies on processes developed by State 
and local governments for coordination and review of proposed Federal 
financial assistance.
    This document provides early notification of our specific plans and 
actions for this program.

Electronic Access to This Document

    You may view this document, as well as all other Department of 
Education documents published in the Federal Register, in text or Adobe 
Portable Document Format (PDF) on the Internet at the following site: 
http://www.ed.gov/news/fedregister.
    To use PDF you must have Adobe Acrobat Reader, which is available 
free at this site. If you have questions about using PDF, call the U.S. 
Government Printing Office (GPO), toll free, at 1-888-293-6498; or in 
the Washington, DC, area at (202) 512-1530.
    You may also view this document in PDF at the following site: 
http://www.ed.gov/programs/charterfacilities/index.html.


    Note: The official version of this document is the document 
published in the Federal Register. Free Internet access to the 
official edition of the Federal Register and the Code of Federal 
Regulations is available on GPO Access at: http://www.gpoaccess.gov/nara/index.html.

(Catalog of Federal Domestic Assistance Number 84.354A Credit 
Enhancement for Charter School Facilities Program)

    The Secretary of Education has delegated authority to the Assistant 
Deputy Secretary for Innovation and Improvement to issue these 
amendments to 34 CFR chapter II.

[[Page 15003]]

List of Subjects in 34 CFR Part 225

    Charter schools, credit enhancement, Education, Educational 
facilities, Elementary and secondary education, Grant programs-
education, Reporting and recordkeeping requirements, Schools.

    Dated: March 18, 2005.
Michael J. Petrilli,
Acting Assistant Deputy Secretary for Innovation and Improvement.

0
For the reasons discussed in the preamble, the Secretary amends title 
34 of the Code of Federal Regulations by adding a new part 225 to read 
as follows:

PART 225--CREDIT ENHANCEMENT FOR CHARTER SCHOOL FACILITIES PROGRAM

Subpart A--General
Sec.
225.1 What is the Credit Enhancement for Charter School Facilities 
Program?
225.2 Who is eligible to receive a grant?
225.3 What regulations apply to the Credit Enhancement for Charter 
School Facilities Program?
225.4 What definitions apply to the Credit Enhancement for Charter 
School Facilities Program?
Subpart B--How Does the Secretary Award a Grant?
225.10 How does the Secretary evaluate an application?
225.11 What selection criteria does the Secretary use in evaluating 
an application for a Credit Enhancement for Charter Schools 
Facilities grant?
225.12 What funding priority may the Secretary use in making a grant 
award?
Subpart C--What Conditions Must Be Met by a Grantee?
225.20 When may a grantee draw down funds?
225.21 What are some examples of impermissible uses of reserve 
account funds?

    Authority: 20 U.S.C. 7223, unless otherwise noted.

Subpart A--General


Sec.  225.1  What is the Credit Enhancement for Charter School 
Facilities Program?

    (a) The Credit Enhancement for Charter School Facilities Program 
provides grants to eligible entities to assist charter schools in 
obtaining facilities.
    (b) Grantees use these grants to do the following:
    (1) Assist charter schools in obtaining loans, bonds, and other 
debt instruments for the purpose of obtaining, constructing, and 
renovating facilities.
    (2) Assist charter schools in obtaining leases of facilities.
    (c) Grantees may demonstrate innovative credit enhancement 
initiatives while meeting the program purposes under paragraph (b) of 
this section.
    (d) For the purposes of these regulations, the Credit Enhancement 
for Charter School Facilities Program includes grants made under the 
Charter School Facilities Financing Demonstration Grant Program.

(Authority: 20 U.S.C. 7223)

Sec.  225.2  Who is eligible to receive a grant?

    The following are eligible to receive a grant under this part:
    (a) A public entity, such as a State or local governmental entity;
    (b) A private nonprofit entity; or
    (c) A consortium of entities described in paragraphs (a) and (b) of 
this section.

(Authority: 20 U.S.C. 7223a; 7223i(2))

Sec.  225.3  What regulations apply to the Credit Enhancement for 
Charter School Facilities Program?

    The following regulations apply to the Credit Enhancement for 
Charter School Facilities Program:
    (a) The Education Department General Administrative Regulations 
(EDGAR) as follows:
    (1) 34 CFR part 74 (Administration of Grants and Agreements with 
Institutions of Higher Education, Hospitals, and other Non-Profit 
Organizations).
    (2) 34 CFR part 75 (Direct Grant Programs).
    (3) 34 CFR part 77 (Definitions that Apply to Department 
Regulations).
    (4) 34 CFR part 79 (Intergovernmental Review of Department of 
Education Programs and Activities).
    (5) 34 CFR part 80 (Uniform Administrative Requirements for Grants 
and Cooperative Agreements to State and Local Governments).
    (6) 34 CFR part 81 (General Educational Provisions Act--
Enforcement).
    (7) 34 CFR part 82 (New Restrictions on Lobbying).
    (8) 34 CFR part 84 (Governmentwide Requirements for Drug-Free 
Workplace (Grants)).
    (9) 34 CFR part 85 (Governmentwide Debarment and Suspension 
(Nonprocurement)).
    (10) 34 CFR part 97 (Protection of Human Subjects).
    (11) 34 CFR part 98 (Student Rights in Research, Experimental 
Programs, and Testing).
    (12) 34 CFR part 99 (Family Educational Rights and Privacy).
    (b) The regulations in this part 225.

(Authority: 20 U.S.C. 1221e-3; 1232)

Sec.  225.4  What definitions apply to the Credit Enhancement for 
Charter School Facilities Program?

    (a) Definitions in the Act. The following term used in this part is 
defined in section 5210 of the Elementary and Secondary Education Act 
of 1965, as amended by the No Child Left Behind Act of 2001:

Charter school

    (b) Definitions in EDGAR. The following terms used in this part are 
defined in 34 CFR 77.1:

Acquisition
Applicant
Application
Award
Department
EDGAR
Facilities
Grant
Grantee
Nonprofit
Private
Project
Public
Secretary

(Authority: 20 U.S.C. 7221(i)(1); 7223d)

Subpart B--How Does the Secretary Award a Grant?


Sec.  225.10  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application on the basis of the 
criteria in Sec.  225.11.
    (b) The Secretary awards up to 100 points for these criteria.
    (c) The maximum possible score for each criterion is indicated in 
parentheses.

(Authority: 20 U.S.C. 7223; 1232)

Sec.  225.11  What selection criteria does the Secretary use in 
evaluating an application for a Credit Enhancement for Charter School 
Facilities grant?

    The Secretary uses the following criteria to evaluate an 
application for a Credit Enhancement for Charter School Facilities 
grant:
    (a) Quality of project design and significance. (35 points) In 
determining the quality of project design and significance, the 
Secretary considers--
    (1) The extent to which the grant proposal would provide financing 
to charter schools at better rates and terms than they can receive 
absent assistance through the program;
    (2) The extent to which the project goals, objectives, and timeline 
are clearly specified, measurable, and appropriate for the purpose of 
the program;
    (3) The extent to which the project implementation plan and 
activities, including the partnerships established,

[[Page 15004]]

are likely to achieve measurable objectives that further the purposes 
of the program;
    (4) The extent to which the project is likely to produce results 
that are replicable;
    (5) The extent to which the project will use appropriate criteria 
for selecting charter schools for assistance and for determining the 
type and amount of assistance to be given;
    (6) The extent to which the proposed activities will leverage 
private or public-sector funding and increase the number and variety of 
charter schools assisted in meeting their facilities needs more than 
would be accomplished absent the program;
    (7) The extent to which the project will serve charter schools in 
States with strong charter laws, consistent with the criteria for such 
laws in section 5202(e)(3) of the Elementary and Secondary Education 
Act of 1965; and
    (8) The extent to which the requested grant amount and the project 
costs are reasonable in relation to the objectives, design, and 
potential significance of the project.
    (b) Quality of project services. (15 points) In determining the 
quality of the project services, the Secretary considers--
    (1) The extent to which the services to be provided by the project 
reflect the identified needs of the charter schools to be served;
    (2) The extent to which charter schools and chartering agencies 
were involved in the design of, and demonstrate support for, the 
project;
    (3) The extent to which the technical assistance and other services 
to be provided by the proposed grant project involve the use of cost-
effective strategies for increasing charter schools' access to 
facilities financing, including the reasonableness of fees and lending 
terms; and
    (4) The extent to which the services to be provided by the proposed 
grant project are focused on assisting charter schools with a 
likelihood of success and the greatest demonstrated need for assistance 
under the program.
    (c) Capacity. (35 points) In determining an applicant's business 
and organizational capacity to carry out the project, the Secretary 
considers--
    (1) The amount and quality of experience of the applicant in 
carrying out the activities it proposes to undertake in its 
application, such as enhancing the credit on debt issuances, 
guaranteeing leases, and facilitating financing;
    (2) The applicant's financial stability;
    (3) The ability of the applicant to protect against unwarranted 
risk in its loan underwriting, portfolio monitoring, and financial 
management;
    (4) The applicant's expertise in education to evaluate the 
likelihood of success of a charter school;
    (5) The ability of the applicant to prevent conflicts of interest, 
including conflicts of interest by employees and members of the board 
of directors in a decision-making role;
    (6) If the applicant has co-applicants (consortium members), 
partners, or other grant project participants, the specific resources 
to be contributed by each co-applicant (consortium member), partner, or 
other grant project participant to the implementation and success of 
the grant project;
    (7) For State governmental entities, the extent to which steps have 
been or will be taken to ensure that charter schools within the State 
receive the funding needed to obtain adequate facilities; and
    (8) For previous grantees under the charter school facilities 
programs, their performance in implementing these grants.
    (d) Quality of project personnel. (15 points) In determining the 
quality of project personnel, the Secretary considers--
    (1) The qualifications of project personnel, including relevant 
training and experience, of the project manager and other members of 
the project team, including consultants or subcontractors; and
    (2) The staffing plan for the grant project. (Approved by the 
Office of Management and Budget under control number 1855-0007)

(Authority: 20 U.S.C. 7223; 1232)

Sec.  225.12  What funding priority may the Secretary use in making a 
grant award?

    (a) The Secretary may award up to 15 additional points under a 
competitive priority related to the capacity of charter schools to 
offer public school choice in those communities with the greatest need 
for this choice based on--
    (1) The extent to which the applicant would target services to 
geographic areas in which a large proportion or number of public 
schools have been identified for improvement, corrective action, or 
restructuring under Title I of the Elementary and Secondary Education 
Act of 1965, as amended by the No Child Left Behind Act of 2001;
    (2) The extent to which the applicant would target services to 
geographic areas in which a large proportion of students perform below 
proficient on State academic assessments; and
    (3) The extent to which the applicant would target services to 
communities with large proportions of students from low-income 
families.
    (b) The Secretary may elect to--
    (1) Use this competitive priority only in certain years; and
    (2) Consider the points awarded under this priority only for 
proposals that exhibit sufficient quality to warrant funding under the 
selection criteria in Sec.  225.11. (Approved by the Office of 
Management and Budget under control number 1855-0007)

(Authority: 20 U.S.C. 7223; 1232)

Subpart C--What Conditions Must Be Met by a Grantee?


Sec.  225.20  When may a grantee draw down funds?

    (a) A grantee may draw down funds after it has signed a performance 
agreement acceptable to the Department of Education and the grantee.
    (b) A grantee may draw down and spend a limited amount of funds 
prior to reaching an acceptable performance agreement provided that the 
grantee requests to draw down and spend a specific amount of funds and 
the Department of Education approves the request in writing.

(Authority: 20 U.S.C. 7223d)

Sec.  225.21  What are some examples of impermissible uses of reserve 
account funds?

    (a) Grantees must not use reserve account funds to--
    (1) Directly pay for a charter school's construction, renovation, 
repair, or acquisition; or
    (2) Provide a down payment on facilities in order to secure loans 
for charter schools. A grantee may, however, use funds to guarantee a 
loan for the portion of the loan that would otherwise have to be funded 
with a down payment.
    (b) In the event of a default of payment to lenders or contractors 
by a charter school whose loan or lease is guaranteed by reserve 
account funds, a grantee may use these funds to cover defaulted 
payments that are referenced under paragraph (a)(1) of this section.

(Authority: 20 U.S.C. 7223d)


[FR Doc. 05-5810 Filed 3-23-05; 8:45 am]
BILLING CODE 4000-01-P